Disruption Starts With A Foot In The Door: Amazon's New Data Plan Is Limited But Potentially Revolutionary

from the need-pressure-from-somewhere dept

Amazon announced a ton of new ereader/tablet devices this morning, which is being covered to death on the various gadget blogs out there. While some of the devices look interesting (and could put some pricing pressure on other tablets), what caught my eye was the addition of a 4G LTE mobile data plan on the Kindle Fire HD. It's $49.99 for the year, though it's limited to just 250MB per month -- which is tiny. Amazon has included mobile data before in its Kindles, but those were strictly for books (which don't take up that much data). As they go further into the fully functional tablet world, this starts to become more interesting. That's because mobile data continues to be something of a racket, with just a few national providers: Verizon, AT&T, T-Mobile and Sprint (and there are limitations there). The pricing offered by those guys always seems to border on collusion (amazing how closely they track each other's pricing changes) and is always focused on keeping the prices very high.

Amazon's offer here is a way to tiptoe into that pool with something of an alternative. Yes, they're just piggybacking on someone else's network via some sort of MVNO (mobile virtual network operator) agreement, so you're still really using one of the national carriers' networks. But from a consumer standpoint, it is offering something of an alternative for mobile data, at much more reasonable prices (though, obviously, the super low caps match that super low pricing). That, alone, doesn't revolutionize mobile data pricing, but it does seem like a way for Amazon to get its foot in the door and expand over time. Amazon has a long history of figuring out ways to do things in a consumer-friendly manner, even if it means undercutting others to do so (which has made it a few enemies). In the presentation itself, Jeff Bezos noted that they're focused on making money elsewhere -- basically as people buy things via the device -- and thus the company has tremendous incentive to keep the prices of the devices and the service quite low. And that has the potential to be quite disruptive.

In some ways, I look at it as similar (in a very different context) to Google's fiber effort in Kansas City. In both cases, you have companies sort of dipping their toes in the water of ancillary markets that make their primary markets more valuable. They're very limited at this time, and many people may brush them off as being useless. But that's what always happens with The Innovator's Dilemma. Offer something simple and small, and the legacy players brush it off as too small or too limited to matter. But keep improving on that, and you undercut legacy providers without them fully realizing what's happening -- often because you're using your tiny and "weak" efforts there to actually enhance your primary market, where the traditional players have no presence.

Lots of people are reasonably mocking the 250MB limit. It is kinda useless. But, look at it as a wedge, and the beginning of the climb up the innovation slope, making Amazon's core business more valuable... and things could actually get quite interesting.

I cannot wait for these "tiny and weak" efforts to grow. Even though it's a small 250mb it's exciting to see any innovation in what has otherwise become a stagnant market. Broadband and mobile broadband are ripe for competition and I would love to see anything that Amazon and Google roll out.

That 250mb limit may seem low, but remember, it's going to be supported by whatever wifi you can get as well. So that's basically just 250mb/month of on-the-go downloading. You've still got unlimited at home, or anywhere with a wifi hotspot.

Sure, you may not be streaming netflix on your moring subway ride in, but if you want to download a couple ebooks, or an app or two? Sure.

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Seconded.

People need to put 250MB in perspective. This is a tablet that will often be used in a "portable" context, that is at home or work. These are wifi locations. It will be used in a fully mobile context less than a smartphone.

Now, in comparing it to smartphones, people should note that the average iPhone used less than 250MB a month up until last year (monthly usage is growing). And people take their iPhones with them every time they go out, and use them more often in places with no wifi.

So, while 250MB a month isn't going to be useful for music or video while on the go, most users will be hard pressed to use up their LTE data cap even if they do everything they want on the LTE Fire connection, except music and video. In a world of hundreds of thousands of apps, that still leaves a lot you CAN do.

The killer is that you have to pay a $200 premium for the device itself, which gets you nothing but a 4G radio and 16GB more of internal storage over the base 8.9". That can't be more than $30 worth of hardware.

I wouldn't be at all surprised if AT&T is getting a cut of that in order to offer such "low" prices.
They also haven't said what happens when you go over your limit. Wanna bet they rake in the overrages?

But hey, they also give you 20GB of storage -- which would take you more than 6.5 years to fill that up with the measly cap provided. Talk about a mixed message.

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3G and 4G tablets have never taken off. The market shows that most people are perfectly fine with using a tablet solely over wifi for the chance to avoid cellular pricing. What this allows is that people can use tablets in the primarily over wifi, but can also update their twitter feeds and check facebook while away from wifi. THAT is where this comes in, and it's a brilliant move.

If the legacy Telecoms weren't so busy with revenue per costumer, they probably would have done something like this themselves to open users up to a cellular tablet.

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Exactly, people don't need to stream Transformers in HD while they're walking down the street. This mobile data plan is enough to keep the tablet from turning into an island when you walk out the door in the morning. That's all it needs to do.

I know, I've got tons of apps that just don't do much on my Nook Color until they can get another taste of that sweet WiFi nectar.

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Think of it this way: at a later point, if there's a lot of subscribers to this plan, they can then offer upgrades. To puit this into perspective, this data plan costs the same as a Starbucks coffee a month, give or take.

And it's a foot in the door: maybe they could combine with Google and others to set up a national network as an additional load-bering support for the current infrastructure, to boot.

Nevertheless, don't forget that LTE is not some cheap, old 56k baud dial-up modem. This is the latest wireless wide-area technology. It isn't cheap. There's a reason handset vendors haven't put LTE in every phone yet, you know.

Of course, the price depends lots on volume of order, etc. Only 15% of current tablets are connected to cellular. Amazon must know their volumes of these LTE models will start out low.

Also, the radio Amazon is using attaches to many, many bands so that the Fire can be sold around the world. That costs more in modem/antenna costs, but saves Amazon in logistics costs.

Don't forget that this is not just an "LTE upgrade" of an existing 3G product. This one starts with NO cellular radio, no antenna, baseband, etc. So the incremental costs are bigger than a phone.

We have to wait for iSuppli or some other group to tear one of these down to get a good idea of BOM costs, but I'd bet Bezos didn't mark up the modem very much at all.

250 mb a month is fine so long as you watch what you're doing on the network. If you want to watch movies, download lots of pictures or other heavy use activities, plug it in or use wi-fi at your local starbucks.

On the conspiracy theory side of things, is this AT&T & Verizon training their customers to get used to smaller data limits? (as opposed to improving their networks)

250MB is pretty damn useful

I have an iPad and use it heavily, but only subscribe to the 250MB plan. In the US, free WiFi is widely available. LTE is a "plan B" for the rare cases where WiFi isn't available.

Like most tablet users, I mainly use it at work (over WiFi) and at home (over WiFi). When I'm out of home or office, I check email and occasionally browse or use maps. I suspect that 250MB/month will be perfectly fine for 80% or more of the buyers.

Re: Re: 250MB is pretty damn useful

I've been saying "WiFi is like tap water" for a few years now, and I think we're finally getting to a point where it's more true than not. At least in the US, you're shocked if someone tells you the tap water isn't drinkable, and you're a little pissed if they want $5 for a glass of it.

250 MB isn't really all that useless when you consider that you can switch between 4G and wireless whenever you have an access point (which is what my wife does at home on her phone, even though she has an unlimited data plan). I only use about 500 MB of my 2 GB data plan, even without switching back and forth, and I could easily halve that if I did the same as my wife.

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Silk

Keep in mind the Kindle Fire web browser (Silk) utilizes page acceleration (proxy/compression) if you so desire. This can reduce data usage quite significantly. For someone who uses mainly a web browser, the 250MB per month can go further than you would think.

Wrong info

"Amazon has included mobile data before in its Kindles, but those were strictly for books"

That is incorrect. I have a Kindle with 3G, and it comes with a web browser that works on 3G. They limit the amount of data you can use web browsing per month, but it has it. And it's free (not this price-per-year stuff). I'll attempt to post here from my Kindle in a few minutes.

It might be tiny, but it is still better.

I've been using T-Mobile's basic data plan on my cellphone which is 200 MB per month for $10 a month. I can get by with that because I switch to wifi whenever I can. Amazon's plan would give me 50 more MB a month for less than half the price? If I had any desire for a tablet, I'd be seriously tempted to buy this one and drop my cell phone data plan.

Maybe useless for you...

...but for the majority (not vast majority, but majority nonetheless) who will be using 3G connectivity as a backup for when WiFi isn't where they are (home has WiFi, work has WiFi, places they hang out probably have WiFi), the $50/year price is a big draw. Keeping in mind that a 300MB iPad plan on AT&T is $20 per month...and the 16GB iPad with AT&T LTE costs $629 (add another $100 to upgrade it to 32GB).

If people realize that their data bucket is very limited (I remember sipping through 100MB of free data on my Google Cr48), they will make sure not to watch videos of any kind on their Fire while using the mobile network. Nor will they be shuffling through long, drawn-out high-resolution photo slideshows. If they stay away from those two activities whole on the mobile network, they will be able to download e-books, surf the web, check e-mail, post tweets and status updates, and download the occasional song from AmazonMP3 wherever they happen to be, all while paying less for a year of service than they pay for a month of service on their cell phone.

Also, I'll bet you $20 that the $50-per-year data plan will just cut off after the 250MB monthly allotment is used. No overages, no muss, no fuss. It's not in Amazon's interest to have customers getting a worse mobile data experience than on the iPad, and both Verizon and AT&T's iPad data plans work this way (I know; I've used up 1GB in a day on my LTE iPad and had to purposely buy another data bucket because my service just stopped at the end of the gig).

The 250MB limit is great, it's $50/yr and it means i don't have to tether my phone all the time when i'm away from Wifi. What's not so great is the $70 more than the 16GB model for the 32GB model, or the additional $130 for the 4G model. No doubt that added price is a factor in why there's even a $50 annual plan...

Big Mobile Pricing

Yeah, it's pretty hard to slice your bill on the major carriers, but I haven't compared enough to make a call on those collusion claims. I have noticed that they all want to sell me way more than I need every month. It's nice not to worry about overages on Sprint, but I've realized that we don't need double unlimited data and texts. So I recently switched to MVNO Ting with their pay-for-your-use pricing model. The data isn't quite as cheap as this Amazon deal, but you can use as much or as little as you want.

I swear I don't work for Ting or anything, I was just shocked how much less my actual usage would cost compared to the blocked out plans of the big boys.

Re: Big Mobile Pricing

I thought that too before re-upping Unlimited 4G with Verizon (while I still could), but when I examined my bills I was surprised to find that with downloading Podcasts and keeping my apps updated (and very little else) I was eating up 3GB/mo on average. I would not consider myself a heavy user by any stretch of the imagination, but I do tend to keep myself off of Wifi as (a) I don't have it at work and (b) 4G is faster than my home internet connection.

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Agreed, there are certainly usage patterns that work and others that won't. We generally use under 1 GB and 150 mins a month on two phones, while the smallest plan we could get was unlimited data and 1500 mins. Service is pretty weak at our house, so we use WiFi and run a Femtocell which offloads a lot of usage. Pretty frustrating when the only way to "save" money is to buy more, more, more. Like doing all your grocery shopping at a warehouse club, but not owning a refrigerator.

Certainly not for everyone, I'm just surprised Sprint allows an MVNO like this on their network, which seems to counter-cut the wireless cabal pricing mentioned earlier.

Actually, what this seems like is Amazon playing a nice little game to make a ton of money on overage. I am also guessing that these accounts are going to be on a sort of "as available" basis, with these users being shoved to the back of the queue if there is any network congestion. There are some advantages too in price when you don't take an actual phone number, and thus the device is "data only". There is a lot more flexiblity in the system.

For the record, my personal cellphone connection (4G) with 2000 or so minutes per month talk time and 10gigs of bandwidth costs the equivalent of just under $20 US per month. No, it's not in the US or Europe, but in one of the more densely populated city states in the world. I also think I am paying too much... I suspect I could have gotten cheaper if I really worked at it.